Hard hit clean-tech companies are 'show-me' stocks in 2012

A solar photovoltaic array is seen here at Nellis Air Force Base in Las Vegas, Nevada. The 15 megawatt plant, consisting of 70,000 panels on 140 acres, provides 30 per cent of the base's electricity needs.

It was a tough year for Canada's publicly traded clean-technology companies. The vast majority saw their share prices drop in 2011, and some plunged to a fraction of their year-earlier levels.

A weak economy and uncertain government support were the prime culprits. However, a handful of diversified companies – most of them established power producers – have fixed-price contracts in place and are churning out cash, along with electricity. They are healthy and, in some cases, pay out dividends.

Among the top players in that group is Brookfield Renewable Energy Partners L.P. , which saw its stock price grow more than 30 per cent over 2011. The company has hydro and wind power plants in Canada, the United States and Brazil.

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Other companies such as Algonquin Power and Utilities Corp. and Northland Power Inc. also own diversified portfolios of renewable power projects, and have shown good growth this past year. Algonquin's stock was up more than 25 per cent, and Northland was up more than 14 per cent. Meanwhile, Innergex Renewable Energy Inc. , which owns hydro and wind plants, eked out a small gain over the course of 2011.

"The more mature, yield-paying utilities are doing quite well," said Rupert Merer, an analyst at National Bank Financial. "They get paid a guaranteed rate for everything they produce [so]they are very predictable and recession resistant."

However, Mr. Merer notes, many other clean technology firms, particularly small ones, are struggling. "It is the earlier stage companies that are still losing money ... that seem to be having trouble," he said.

Solar-related stocks have been among the hardest hit. Prices for solar panels have plunged as a result of a glut of production in China. In addition, many governments have reduced subsidies for solar power.

Canadian Solar Inc. , the Kitchener, Ont.-based panel maker that operates around the world, is a prime example of the group's struggles. Despite a jump up late in the year when the company sold a portfolio of solar projects to TransCanada Corp., Canadian Solar shares are trading for less than a quarter of their price early in 2011.

Smaller solar companies have been hit just as hard.

Arise Technologies Inc., once a star in the solar business, saw its stock fall off a cliff this year. It was delisted by the TSX just before Christmas. Its shares fell from about 16 cents early in the year to below two cents by December. Day4 Energy , a Vancouver solar technology firm, is trading at less than a fifth of its price at the start of the year, and ATS Automation Tooling Systems Inc. , which has only a portion of its business in the solar sector, fell about 4 per cent over the year.

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Among the hardest hit of all clean technology sectors is geothermal. While there is little geothermal exploration activity in Canada, many geothermal companies that work in North and South America trade their shares on the TSX, and they had a terrible year. Ram Power Corp. is off more than 80 per cent over 2011, U.S. Geothermal Inc. is down by two-thirds, and Nevada Geothermal Power in is off about 90 per cent. Alterra Power Corp. , which has both geothermal and hydro projects, is down by more than 70 per cent.

Essentially, "they didn't execute well" said John McIlveen, research director at Jacob Securities Inc. in Toronto. Some geothermal firms had problems with technical drilling issues, while others ran into financing problems.

Mr. MacIlveen said the only thing that is going to turn around geothermal stocks in 2012 is if individual companies can demonstrate they have solid cash flow from completed projects. "They are all show-me stocks now," he said.

For 2012, that attitude will be rampant across the entire clean-technology sector, Mr. McIlveen said. Because of uncertainties about the future of carbon credit markets around the globe, and worries that existing subsidies and tax credits for renewable power may be cut, only companies generating cash will likely do well on the markets.

Mr. Merer said that among the companies he will be watching in the coming year are industrial waste reprocessor NewAlta Corp. , which saw modest gains in its stock price in 2011, and Westport Innovations , a company that converts vehicles to run on natural gas and had an excellent year with its stock up around 80 per cent.

Any company associated with non-conventional uses of natural gas seems to be doing well, Mr. Merer said. "Even though [Westport]is losing money, that is one theme that plays well with investors."

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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